Renewable subsidies ‘to add more to energy bills than planned’
Consumers will see an increase in household energy bills at the end of the decade as a result of the government exceeding its subsidies cap set for low carbon generation.
According to the National Audit Office (NAO), the government initially set a cap on the Levy Control Framework (LCF) of £7.6 billion for 2020/21 but it is expected to increase to £8.7 billion.
That’s equivalent to £110 or around 11% on the typical household dual fuel bill at the end of the decade – £17 more than if the scheme stays within the cap.
It believes the government has “missed opportunities to exploit the full potential of the LCF”, which was created to limit costs for households and businesses.
Established by the former Department of Energy and Climate Change and the Treasury, the LCF sets a cap for the forecast costs of certain policies funded through levies on energy companies and ultimately paid for by consumers.
Since November 2012, it has covered three schemes to support investment in low carbon energy generation: Renewables Obligation, Feed-in Tariffs (FiTs) and Contracts for Difference (CfDs).
The NAO’s report states weaknesses in forecasting and in its approach to allocating the budget up until April 2015 have resulted in “little unallocated budget left for new projects” between now and 2020/21.
It blames the overspend on the energy department not being able to see that more renewable energy was being deployed than expected as a result of subsidies.
The report suggests holding back more of the LCF budget and allocating it later would have been more cost-effective as the costs of renewable energy sources have fallen.
It also found the framework has not met its potential to support investor confidence because of its short and decreasing timeframe and a lack of transparency over forecasts and how the budgetary cap would operate.
While the government reined in some of the spiralling costs by cutting subsidies for onshore wind, solar and biomass projects, the NAO says more needs to be done to develop a “sufficiently coherent, transparent, long term approach to controlling and communicating the costs of its consumer-funded policies”.
Other policies such as the Capacity Market, Warm Homes Discount scheme, Energy Company Obligation and smart meters are forecast to add £54 to consumer bills in 2020.
Amyas Morse, Head of the National Audit Office said: “The Levy Control Framework has helped make some of the impacts of renewable energy policies on consumers clearer. But government’s forecasting, allocation of the budget and approach to dealing with uncertainty has been poor and so has not supported value for money.
“In addition, a lack of transparency over the Framework and expected future energy bills has undermined accountability to Parliament and consumers.”
The Department for Business, Energy Industrial Strategy (BEIS) said its top priority is ensuring families and businesses have a “secure, affordable, clean energy supply”.
A spokesperson added: “Our actions have reduced projected costs on the Levy Control Framework by around £520 million and we continue to make further improvements to deliver value for money for consumers.”